How Will Your Franchise Ownership End?
Learn how to invest your IRA or 401k into a franchise penalty-free. ($50k min)
It seems funny to think about selling your business before you even start, doesn't it? But having a vision of how you would like to conclude your business ownership before getting started is no different than knowing your destination before you start a trip.
When I talk to prospective franchisees early in their discovery process, I always ask the same question: "When you look back at your first year in business, what would you like to have accomplished?" More than 75 percent of the time, I am met with a blank stare. When they finally do respond with an answer, I usually follow up with, "So, when the day comes to eventually leave the business, how do you foresee that happening?" That's the guaranteed deer-in-the-headlights question.
Do you think if I had asked Donald Trump or Michael Phelps when they started out what they hoped to accomplish that they'd have that same look? Nope, not even close. These competitors know how they want to finish what they start--and how to build the plan to achieve it.
So how does an aspiring entrepreneur envision the conclusion of their business endeavor before they get too far into it? Ninety-eight percent of TSS Photography and Young Masters franchisees are first-time business owners, and it's a huge step for them. It can seem inconceivable to discuss exit-strategy before even celebrating the grand opening, but doing so has tremendous value for both the franchisee and the franchisor.
Why? First of all, it gives you a sense of motivation. As we near 10 percent unemployment nationwide (and go well past it in some areas of the country), the fear of losing a job or the sting of having already lost one is encouraging more people to own their own business. This is the third economic downturn in my 17 years in franchising, but this time around aspiring entrepreneurs are really struggling to fund their dreams of self-employment. And once the funding is there, they still have to battle through the inherent fear of such a big decision. The best antidote to fear is knowledge! Knowing you have options and control over your future is empowering.
In talking with other franchisors, I'm somewhat surprised at how few of them engage in the "what if"business transfer discussion with prospective franchisees. In some cases, by not bringing up this eventuality, they fall short of extolling the many virtues of franchise ownership. Perhaps they fear extinguishing the excitement of the launch. But I believe this is an ideal time to discuss the end-game, because in today's uncertain world, it's comforting to know you'll have options when the time comes to exit your business. It takes planning and hard work to make sure you maximize the value of your efforts.
For example, one franchisor I talked to had a 70-year-old, highly successful franchisee who was thinking about passing on his franchise to a family member. But that family member didn't have the same experience or appreciation for the franchisor and only saw the individual work their father had invested in building the business. When the time came to prepare the owner's exit, the franchisor reached out to both members of the family and worked with them to smoothly and profitably transition the business to the next generation.
Does this story make you wonder what would have happened if the business in question had not been a franchise? I can answer that from personal experience; my family's landscaping business was a case study for exit strategies (both good and bad).
My father had a 10-year plan in mind the day he purchased seven acres to house the building and nursery of Lindenmayer Landscapes outside of Herkimer, N.Y. At the time he was 55, and the thought of digging holes and carting around wheelbarrows into his late 60s was pretty far back in his mind. As the business's 10th year began, my parents obviously planned to pass it on to my brother and me. Unfortunately, his divorce and my lack of funds kept us from being able to carry the torch. My dad sold the equipment and a few accounts to a budding entrepreneur and the land was eventually sold in two parcels. Lindenmayer Landscapes ceased to exist.
My family's story is not uncommon among entrepreneurs who try to transfer their businesses to family members. Unfortunately, the SBA reports that two-thirds of businesses passed on to the next generation fail.
I'm not saying a franchised business can't fail upon a transfer, too, but a franchise system is designed to survive the individual, and a successful brand is something that has a life of its own. A business doesn't have to be a household name to have value at the end of one owner's life-cycle; however you must have someone vested in the transition. By its nature, a franchise system must ensure the success of its franchisees and work diligently to provide training, support and ongoing inspiration to whoever's at the helm.
Here are a couple things to consider long before your grand opening:
- What's the market for your business today? What's it likely to be in five, 10, 20 years?
- Are there any barriers to you selling your business--certifications, the name of the business, personal relationships that can't transfer beyond you, etc.?
- If passing the business on to family is a consideration, how will you prepare them to take over? Is that going to be an option for both you and them financially?
- Will your cash management allow you to properly value the business? What actions do you need to take to make sure you show accurate numbers to a potential buyer or investor?
Given the tightening of the credit markets and the transient nature of today's society, don't you want the peace of mind of knowing that your business is nearly as mobile as you are? Make sure you understand the options you'll have down the road if and when the day comes to move on, and you may find that some of the anxiety of starting your journey into franchise ownership subsides.